Correlation Between Shantui Construction and Long Yuan

Can any of the company-specific risk be diversified away by investing in both Shantui Construction and Long Yuan at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Shantui Construction and Long Yuan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shantui Construction Machinery and Long Yuan Construction, you can compare the effects of market volatilities on Shantui Construction and Long Yuan and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Shantui Construction with a short position of Long Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shantui Construction and Long Yuan.

Diversification Opportunities for Shantui Construction and Long Yuan

0.81

Correlation Coefficient

Shantui Construction  Long Yuan

Very poor diversification

The 3 months correlation between Shantui and Long is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shantui Construction Machinery and Long Yuan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Yuan Construction and Shantui Construction is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Shantui Construction Machinery are associated (or correlated) with Long Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Yuan Construction has no effect on the direction of Shantui Construction i.e., Shantui Construction and Long Yuan go up and down completely randomly.

Pair Corralation between Shantui Construction and Long Yuan

Assuming the 90 days trading horizon Shantui Construction Machinery is expected to under-perform the Long Yuan. But the stock apears to be less risky and, when comparing its historical volatility, Shantui Construction Machinery is 1.09 times less risky than Long Yuan. The stock trades about -0.03 of its potential returns per unit of risk. The Long Yuan Construction is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  414.00  in Long Yuan Construction on September 21, 2024 and sell it today you would lose (4.00) from holding Long Yuan Construction or give up 0.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Shantui Construction Machinery  vs.  Long Yuan Construction

Shantui Construction

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shantui Construction Machinery are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shantui Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Long Yuan Construction

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Long Yuan Construction are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Long Yuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shantui Construction and Long Yuan

The main advantage of trading using opposite Shantui Construction and Long Yuan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shantui Construction position performs unexpectedly, Long Yuan can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Long Yuan will offset losses from the drop in Long Yuan's long position.

The idea behind Shantui Construction Machinery and Long Yuan Construction pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.